Nayara Energy says industry facing significant drop in margins due to retail fuel price freeze

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Oil marketing companies (OMCs) have left the retail prices of fuel unchanged despite a steep rise in crude oil prices, which has resulted in a "significant drop" in margin, Naraya Energy Ltd told Moneycontrol.

State-run OMCs have left the retail fuel price unchanged since November 4, 2021, despite an increase of around 40 percent in international crude oil prices in the period. The private companies that sell fuel in retail, like Nayara Energy, Reliance Industries and Shell have been unable to increase the product prices too as any significant increase would lead to a loss of customers to their public sector competitors.

“The industry has not implemented a price hike at retail fuel stations since November 2021. Since the beginning of the year, oil companies have been absorbing the impact of soaring international crude prices ($80 to over $110 a barrel) resulting in significant drop in margins,” Nayara Energy said in an email response to a Moneycontrol query.

Petrol pump dealers and reports suggest that the supply of both petrol and diesel has been reduced at some stations as companies are facing losses on the sale of these products. The industry is rife with speculations that private fuel retailers, like Jio-bp, Nayara Energy, and Shell will have to revisit their business strategy and may even consider the closure of some pumps as their inability to pass on the burden of the increase in crude oil prices to consumers threatens the financial viability of these outlets.

Nayara did not respond to specific questions on pricing strategy, possible closure of outlets or change in strategy. The company, however, said, “While our company continues its retail operations, we are exploring several options such as viable fuel pricing to arrive at a sustainable solution.”

Nayara Energy has a retail network of over 6,500 fuel stations across the country. Rosneft owns a 49.13 percent stake in Nayara Energy, formerly Essar Oil Limited. Rosneft, along with an investment consortium comprising global commodity trading firm Trafigura and UCP Investment Group acquired the downstream and petrochemicals company in August 2017.

Earlier in the day, Moneycontrol had reported that bulk buyers are turning to retail outlets after a hike made bulk diesel costlier by Rs 25 a litre than the retail prices, which remained unchanged for four months. Reliance Industries, which runs fuel retail outlets through a joint venture with bp under the brand Jio-bp, had said that an impending rise in fuel prices has led customers, both bulk and retail, to buy oil in advance, translating into a surge in sales this month, and putting the entire supply chain under pressure.

Disclosure: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.